Yahoo's profits jumped 51 percent during the second quarter to $213 million, while revenue was up 2 percent from the same period last year, the company said Tuesday.
"We're pleased that we continued to deliver strong operating income and margin expansion," Yahoo chief executive Carol Bartz said in a statement. "Our search fundamentals are improving and we posted another quarter of healthy display advertising growth."
Revenue for the second quarter was $1.601 billion, up 2 percent from last year. It is also up slightly from last quarter, which saw $1.597 billion in revenue.
Revenue was about $40 million below the mid-point of Yahoo's guidance, which Bartz said during a later conference call was due to adverse foreign currency, as well as performance on search and display.
Profits were up 51 percent, from $141 million a year ago to $213 million. That's down from the $310 million in profits recorded last quarter.
As part of its search deal with Microsoft, Yahoo received $86 million from Microsoft to help defray the cost of transitioning to Microsoft's systems – things like legal fees, retention, and training. Last quarter, Yahoo received $150 million from Microsoft.
Under the terms of the Microsoft-Yahoo deal, Microsoft will power Yahoo's search site while Yahoo will manage the sales force for both companies' premium search advertisers. That transition is "progressing well," Bartz said during the call.
Yahoo has moved more than 125 of its employees over to Microsoft during the second quarter, and Yahoo recently began internal testing on search, whereby Microsoft will power 25 percent of algorithmic search results in the U.S. and a smaller percentage of paid results, she said.
"Search operating cost reimbursements are expected to continue until Yahoo has fully transitioned to Microsoft's search platform," Yahoo said.
Yahoo said its display advertising business grew 19 percent year-over-year to $468 million.
Yahoo's search saw gains, but Yahoo did not monetize them as much as expected. The company saw healthy ad spending, but during the second week of June, several large advertisers "pulled back." The first three weeks of July indicate that "we're back to normal," Bartz said, so that is not indicative of a larger trend.
Bartz stressed the importance of engaging the Yahoo user going forward. "Users want to go beyond words," she said. "They want videos, they want to interact, they want it local, and personally relevant."
She pointed to Yahoo's acquisition of Associated Content as well as the launch of search-related Upshot blog as ways to draw in users by leveraging data about user searches. Those two initiatives will use Yahoo's unique strengths to pair "editorial expertise with a huge treasure trove of data on Yahoo ... to deliver content that we know [users] want and will respond to," Bartz said.
On the social front, Yahoo has been integrating Facebook into its network for the past few months, and Bartz said that "users who connect to their Facebook accounts with Yahoo view more pages and spend more time on our network."
As part of its recent deal with Zynga, meanwhile, Yahoo will start to integrate the company's games into Yahoo starting in August. In the fourth quarter, Yahoo will host Zynga games like FarmVille directly on Yahoo, Bartz said.
Editor's Note: This story was updated with additional information from Yahoo's conference call.